How to Invest as a Teenager for Financial Success (2024)

Understanding how to invest money as a teenager can actually be a huge boost for a teen’s future finances.

Now, you’re probably wondering, “How does investing as a teen even work?” It’s all about these cool things called a custodial brokerage account.

They’re like a beginner’s toolkit for young investors, giving a teen a way to start investing early without diving in headfirst.

So, if you’re ready to level up your teen’s money game, stick around. I’ll break down the basics of investing as a teen, and we’ll kickstart their path to financial freedom.

Key Takeaways

• Investing for teens is all about getting savvy with your money.
• If you’re a teen, play around with pretend brokerage account portfolios to get the hang of things.
• Then chat with your family (they’re not as boring as they seem), and get things launched for real!
• Teen investors need to get to know different investment types like stocks, ETFs, mutual funds, and bonds.
• Even teens should think long-term and consider college savings and retirement accounts.
• Building your teen investment strategy is like making your own game plan. Check your risk tolerance, spread out your investments, and do some research.

How To Invest As A Teenager

Have you ever considered investing young but felt like it was just for the Wall Street crowd? Well, guess what?

Investing is possible for teens, too, and getting into it now can be like unlocking a secret level in a game where the prize is your future financial future.

These are great tips that I used to start investing for myself in college and also to start some investments for my kids!

Learn About Investing

Investing might seem a bit scary at first, but trust me, it’s not as scary as it sounds.

I totally get it- I’m learning all I can now to start investing for my girls. They are still young children, but time goes by quickly, and they will be teens before I know it.

Here are some places where I started looking for information about investments and how the stock market works for my girls. They helped me, and I think they will help you, too!

• TeenVestor – TeenVestor can help you learn the ins and outs of investing. They offer the basics of financial assets to more advanced topics, all tailored for the younger crowd.
• Wealthfit’s Investing 101 for Teens & Investopedia – Wealthfit offers your go-to online libraries for everything investing., and packs a punch with video modules aimed at teens.
• Investodepia – Investopedia is like the Wikipedia of finance and investing. It’s blog-style with hundreds of articles about investing options and investment platforms.
• TD Bank WOW! Zone – TD Bank WOW! Zone has put together lesson plans that make learning about finance fun and relevant and help adults who want to teach teens about investing.

Try Mock Portfolios/Investing Tools

Wouldn’t it be nice if you could give investing a test run first? Well, you can!

Mock portfolios or virtual trading platforms are awesome tools to get a feel for the market without risking real money or setting up a custodial account.

As a teen investor, it’s like having a practice field where you can sharpen your skills before starting your investing journey for real.

Here are 3 sites to get started:

• The Stock Market Game & How the Market Works – The simulators on The Stock Market Game & How the Market Works are like playing a video game in which you navigate stocks.
• Wall Street Survivor – Wall Street Survivor breaks down investment concepts into easy-to-digest lessons and lets you trade stocks virtually.
• Young Investors Society – The Young Investors Society offers paper trading challenges like the Dollar-a-Day challenge, where new investors can learn the magic of saving and investing.

Research Common Investment Scams!

As a teen investor, keeping your hard-earned money safe when you make investments is a big deal.

See, there are all sorts of sneaky scams out there, from dodgy penny stocks to schemes promising crazy high returns when you invest in stocks.

Some sites can help you learn more about scams:

• Investor.gov – Investor.gov is a site run by the U.S. Securities and Exchange Commission (SEC). It has a checklist of red flags that infer investment fraud.
• FINRA (Financial Industry Regulatory Authority) – FINRA provides detailed guidance on various fraudulent schemes and practical tips to protect yourself.

Save Up Funds

Saving up funds is the first step towards investing, and as a teenager, you might wonder where to start. The answer is actually pretty simple!

You can begin by setting aside money from your allowances, part-time job earnings, or cash gifts you receive. Every little bit adds up, so remember the power of those small contributions.

Think about opening a high yield savings account like the ones at Chime to stash away your funds. Not only will it keep your money safe, but you’ll also earn some interest along the way.

Plus, the more you save, the more you’ll have to invest when you’re ready.

Talk About Signing Up W/ Your Family

Getting your family on board with your investment goals is more than smart; it’s necessary, especially if you’re not 18 when you begin investing.

For starters, you’ll need their OK to open an account and get the ball rolling with an official investment platform.

But it’s more than just ticking a legal box. Having a parent or guardian involved means:

• You can get investment advice, especially if they are advanced investors – someone to help decode the complex world of investing.
• You can work together and tag team finances. Bringing more minds to the table can lead to better financial decisions and strategies.
• You can celebrate the wins together and enjoy the sense of achievement as a family. You can also learn from the losses together and use setbacks as valuable learning opportunities.

Check Out Custodial Accounts

Ready to start investing but not quite the big 1-8 yet? Cue custodial accounts!

Your parent or guardian can help you open a custodial account, and from there, you’ll have access to a whole new world of investing opportunities.

A parent or guardian manages these special brokerage accounts until you hit legal age/become an adult.

Custodial accounts operate under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).

They give you the green light to hold a wide range of assets and may be exempt from some taxes by the Internal Revenue Service.

Curious where to find these custodial accounts? An investing account can typically be set up through most major financial institutions or online brokerage firms, like M1 Finance or Acorns Early.

Decide On Investment Options

Now that you’ve saved up some money and done your homework, it’s time to decide where to put your hard-earned cash to work.

There are many investing options available, each with its own set of risks and rewards.

You’ve got:

• Stocks
• Bonds
• Mutual funds
• Real estate

But here’s the thing: the right choice depends on your financial goals and how much risk you’re comfortable taking. And that takes some learning and thinking!

Investment Options (In-Depth)

Stock Market & ETFs

The stock market is one place where investors can grab a slice of ownership in various companies.

When you invest in individual stocks, you’re essentially becoming a part-owner, riding the waves of profits and losses alongside the company’s journey.

Exchange-traded funds (ETFs) bundle assets like stocks, bonds, or commodities into one neat package.

You have more flexibility with your investment because an ETF can be bought and sold throughout the trading day.

Both stocks and ETFs shine because of their power of diversification. With stocks, you can spread your investments across different companies and sectors, reducing your risk.

ETFs are similar to mutual funds in that they can have a range of investments altogether (below), but unlike mutual funds because they trade on stock exchanges.

Mutual Funds & Index Funds

A mutual fund is like a collective investment pot where people pool their money to invest in a variety of assets.

Mutual funds spread risk and diversify your investment portfolio without picking individual stocks or bonds.

An index fund also pools investors together but sticks to stocks and bonds. It’s a hands-off approach that focuses on keeping pace with overall market trends.

They track the performance of a specific market index, such as the S&P 500. Instead of trying to beat the market, they try to match its movements.

The real perk of both a mutual fund and an index fund is that experienced professionals typically manage them for you.

Bonds

Bonds are tools for borrowing, used by both governments and companies to gather capital. Investing in a bond means you’re giving a loan to the issuer of the bond.

These debt securities pay interest to the bondholder throughout the bond’s term and return the principal amount at the end.

Bonds offer a steady stream of income, making them attractive to many investors seeking reliable returns from low-risk investments.

Additionally, they play a crucial role in diversifying investment portfolios, helping to mitigate risk.

College

Investing in a college savings plan is like giving yourself a head start on your educational journey.

These plans, like the 529 Plan with UPromise, help you stash away cash for college and offer some pretty sweet tax benefits.

By investing in a college savings plan now, you’re setting yourself up for success in the future.

Not only will you be able to save money on future education costs, but you’ll also be lightening the load when it comes to taking out those dreaded student loans.

Retirement

I know – retirement feels lightyears away when you’re still in your teens, but trust me, starting to save now can make a world of difference down the road.

A Custodial Individual Retirement account, like a Roth IRA with Empower, can help you build a cozy nest egg for the future.

Not only do they offer some sweet tax advantages over other investments, but they’re also a smart way to get ahead financially.

Plus, with lower-risk investments like savings accounts or a custodial IRA, you can sleep easy knowing your money’s working hard for you.

The Investor’s Toolkit: Tips For Investing

Assessing Risk Tolerance

Risk tolerance sounds scary, right? But it’s really just a way of expressing how comfortable you are with the ups and downs of investing.

Why does it matter? Well, it’s all about how you handle risks that affect the types of investments you go for and how you react when the market gets a little wild.

Investments may lose money over time, or they may not- different investment options have more or less risk, and you have to decide how much money you’re willing to lose if you don’t get the payout.

Assessing risk tolerance comes down to the estimated low vs your estimated gains. For example:

• Conservative portfolio: annual returns at 8% with only a 14% chance of loss
• Risky (aggressive) portfolio: potentially 10% returns, but has the potential to lose 44% of your money.

Diversification: Not Putting All Your Eggs in One Basket

Diversification is spreading out your investments across different types of assets. Think of it as having a bunch of different baskets for your eggs instead of cramming them all into one.

By spreading your investments across different asset classes- like stocks, bonds, and even savings accounts- you’re not putting all your eggs in one basket.

That means if one investment doesn’t perform as you hoped, it won’t tank your entire portfolio.

How to Research Stocks

It’s like being a detective, but instead of solving crimes, you’re looking for clues about which companies might be worth investing in.

• Dig into a company’s financials. Check out income statements, balance sheets, and cash flow statements. Despite sounding boring, these numbers provide valuable insights into the company’s performance.
• Stay updated on company news. Keep an eye out for product launches, mergers, or leadership changes. Such updates can offer valuable clues about the company’s prospects.

Evaluating Index Funds and ETFs

When it comes to evaluating index funds and ETFs, there are a few things you’ll want to keep in mind to make sure you’re picking winners:

• Assets: Check what’s inside. Look at the stocks, bonds, or other assets the fund invests in.
• Fees: Watch those costs. High fees can take your returns over time.
• Historical Performance: Look back! Past performance can give you an idea of how the fund has done and if you would benefit overall.

Insights on Bonds and Interest Payments

Bonds offer a steady source of income through a fixed interest rate. Whether you’re a seasoned investor or just starting, it’s important to know how bonds work and how they earn interest.

Learning about interest rates is key because they can significantly impact your returns.

For young investors looking for a reliable income stream for their portfolio, bonds are a great way to earn money steadily.

Using Investing Apps and Virtual Trading

Investing apps and virtual trading platforms let you practice your investing skills without risking a penny of your hard-earned cash.

These apps and platforms mimic the real stock market, giving you a chance to test out different investment strategies and see how they play out in real-time.

Whether you’re a rookie investor looking to dip your toes into the market or a seasoned pro exploring new tactics, these tools offer a risk-free environment to experiment and refine your approach.

FAQs

Why is investing a good way to make money?

Investing can potentially amplify your money more lucratively in comparison to mere saving- you use your money to grow more money.

When you invest money, it can potentially bring in higher returns, and the power of compound interest means your investments can grow significantly over time.

It’s also a way to achieve financial success, build wealth, and meet long-term financial goals.

Is investing important for a teenager?

Absolutely! Investing as a teenager has several benefits:

• Grow money with compound interest
• Learn vital money management and personal finance skills
• Investing early sets them up for future financial success

Can teenagers sign up for investment platforms?

Typically, investment platforms require users to be 18 or older to open a brokerage account. But, teenagers can kickstart their investment journey with parental or guardian assistance.

Parents or guardians can start a custodial brokerage account for their teenager, where they oversee and manage the investments until the teenager reaches legal adulthood.

How do beginners start investing?

Beginners can start investing by:

• Learning about investing
• Saving up funds
• Opening an investment account
• Choosing an investment strategy
• Practicing investing through mock portfolios or virtual investing platforms without risking real money
• Commencing with small investments and progressively reviewing them as you acquire more knowledge and experience

Final Thoughts

Investing as a teenager can be an exciting and rewarding journey.

It not only helps you build financial literacy skills but also sets you up for financial independence in the future.

You can help make informed investment decisions for your custodial account by understanding different investment options, knowing your tolerance for risk, and diversifying your portfolio.

Remember, start early, invest wisely, and always keep learning when investing for teens.